Audit risk should be considered when planning and performing an audit of financial statements in accordance with generally accepted auditing standards.
a. Define audit risk.
b. Describe its components of inherent risk, control risk, and detection risk.
c. Explain the interrelationship among these components.
d. Which (if any) of these components is completely a function of the sufficiency of the evidence gathered by the auditors’ procedures? Explain your answer.
e. Comment on the following: “Since cash is often less than 1 percent of total assets, inherent and control risk for that account must be low. Accordingly, detection risk should be established at a high level.”